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Deductions, such as those claimed by petitioners on their
Schedules F, are a matter of legislative grace. A taxpayer
claiming such deductions must prove entitlement to them.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). In
particular, for a taxpayer to claim a deduction on a Schedule F,
the taxpayer must establish that the farming activity constitutes
a trade or business. The Supreme Court has stated that "to be
engaged in a trade or business, the taxpayer must be involved in
the activity with continuity and regularity and * * * the
taxpayer's primary purpose for engaging in the activity must be
for income or profit. A sporadic activity * * * does not
qualify." Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987).
The question of whether a taxpayer is engaged in a trade or
business requires an examination of all the relevant facts.
Id. at 35. In applying the facts and circumstances test, courts
have focused on three factors indicative of whether a trade or
business exists.
First, the taxpayer must undertake the activity intending to
make a profit. Drobny v. Commissioner, 86 T.C. 1326, 1340
(1986), affd. 113 F.3d 670 (7th Cir. 1997); Green v.
Commissioner, 83 T.C. 667, 687 (1984). Second, the taxpayer must
be regularly and actively involved in the activity. Snyder v.
United States, 674 F.2d 1359, 1364 (10th Cir. 1982). Third, the
taxpayer’s business operations must have actually commenced.
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